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2 ways to use open enrollment to stay on track with retirement savings

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Retirement often takes a backseat to health insurance during open enrollment, the time of year when you can elect or change your employer-sponsored benefits. That's typically because you can tweak most retirement plan decisions year-round, while you have just a few weeks to pick next year's insurance coverage.

But experts say there are still ways you can use open enrollment to make savvy decisions that will help you stay on track with your retirement goals. Here's how.

1. Increase your 401(k) contributions

Good news for savers: The IRS will allow workers to set aside more money in their 401(k) plans for retirement come 2020. Next year, you'll be able to save as much as $19,500 in your workplace retirement plan, a $500 increase from 2019. While that's a lofty goal for most people — the equivalent of setting aside $1,625 each month — changes such as this can be useful for prompting tweaks in your own strategy.

As you think about the year ahead, now is a good time to boost the amount you're saving for retirement — or finally set up your 401(k) plan, if you haven't already. It's especially important to reevaluate your contributions if your company offers a 401(k) match because this free money can really supercharge your savings.

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What is a 401(k) match and how can you take advantage of it?

Video by Ian Wolsten

Even a small change, like a 1% boost to your savings rate, can really add up over time. For someone with a $50,000 salary, an extra 1% works out to $500 per year. Over 40 years of working, that could grow to nearly $83,000, assuming average annual returns of 6%.

The IRS also offers an important incentive to contribute to your workplace retirement plan: tax savings. That's because 401(k) contributions are made before taxes are taken out. So every $100 you contribute only reduces your paycheck by about $78, depending on your tax bracket.

Chad Parks, founder and CEO of 401(k) provider Ubiquity Retirement + Savings, calls that "the government match." "So please do at least participate, even if your company doesn't have a match," he says.

Please do at least participate, even if your company doesn't have a match.
Chad Parks
founder and CEO of Ubiquity Retirement and Savings

2. Sign up for a health savings account

As you look over your health plan options for next year, check to see if your employer offers a high-deductible health insurance plan paired with a health savings account, or HSA. As of 2019, 30% of workers covered by their employers have enrolled in one, according to a 2019 employer health benefits survey conducted by the Kaiser Family Foundation.

You may see HSAs referred to as the holy grail for savers. That's because these accounts come with three big tax benefits: Contributions are pretax, typically grow free of taxes, and can be withdrawn tax-free for qualified medical costs.

While HSAs aren't intended for retirement, they're an investment vehicle that many Americans are using to save money for retirement.

"People need to think a lot more about the intersection of their HSA and their retirement benefits," says Adam Johnson, vice president of health navigation at Alight Solutions, which assists companies with their benefits packages. "We tend to look at HSA benefits as being an immediate-use health-care spend vehicle, but the reality is you can use the money in your HSA the rest of your life."

The reality is you can use the money in your HSA the rest of your life.
Adam Johnson
vice president of health navigation at Alight Solutions

In 2020, you can save up to $3,550 in your HSA if you're in a high-deductible plan with single coverage. That amount increases to $7,100 for family plans. The catch, however, is that you must be enrolled in a high-deductible health plan, and these have carry higher out-of-pocket costs before coverage kicks in.

Finally, you can add additional money to your HSA outside of open enrollment, which is helpful if you encounter some unexpected medical expenses, according to Johnson.

"Tons of people sign up for HSAs, but they forget that they can add additional money as they go," Johnson says. "These accounts can be pretty powerful."

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